Debtor’s looking to get out from underneath homes that are upside down in value can file Chapter 7 Bankruptcy. In some cases Chapter 7 bankruptcy may be the right strategy for a debtor looking to walk away cleanly from their homes.
However, bankruptcy deals only with the debt, not the title or deed. When you surrender your home in chapter 7 bankruptcy, the debtor discharges any obligation on the mortgage note, but the debtor’s name remains on title. Bottom line is Until the deed transfers then buying another home is virtually impossible.
BK does not affect your ownership in the home at all. You will be unable to buy another home or have some credit issues until your name is off title or deed of the home included in the bankruptcy. As long as your name is on title you are considered the legal owner of the home and are 100% responsible until your name is off that deed.
Again, including a mortgage in Bankruptcy does not change your ownership. It only protects you against tax liability and when the mortgage debt is discharged you are protected against personal liability of the mortgage loan should the home be foreclosed on by a lender during or after the bankruptcy. This means the lender cannot come after you for their losses. Meanwhile you are still owner of record at your local county recorders office where the deed was filed and recorded.
Now, there is a waiting period to qualify for a new loan after bankruptcy. That waiting period does NOT begin after the bankruptcy is discharged. It begins the moment you are no longer on title or deed. In many cases it does not happen right away.
Their must either be a judicial foreclosure which requires the lender to go through the court system to take back ownership of the property or title from You or a non judicial foreclosure which allows the lender to sell the property at a foreclosure auction without court approval of which either could take many months...and in most cases years.
A "deed in lieu of foreclosure" which is where you sign over all interest to the property to the lender is another way for the bank to take title but it must be approved. Again months and yes even years. Either way until the property is in the possession of the bank you are still the legal owner of the property.
Not only that but some banks/lenders have used the "deed in lieu" process to tie you back to them via the paperwork! That's why after bankruptcy they may want you to do a "deed in lieu" with them to have some legal connection to you to get you back on the hook! With a foreclosure they don't need you to sign paperwork or your signature but they have no legal connection to you. Beware of the deed in lieu after bankruptcy.
Until you're off title/deed, these are so called "zombie" homes and guess who is still on title? You. The homeowner. You can wait until the bank forecloses or approves a deed in lieu and there are cases of that never happening or you can do something about it your self since you are still the legal owner of the home.
The task is to find someone that will agree to take ownership. And that is Mortgage Relief Solutions. We take over...you move on.
By Eric Brown
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